Design- What would it look like? The most practical application would have it consume a block at a 45 degree angle, thus it would appear and place much like a stair block except it would be a flat off-white sheet of canvas.
Function- What would I do with Canvas?
*The simplest thing would be to pup a tent; twelve blocks stacked in a pyramid structure would provide minimal shelter from the elements, but probably not from mobs. It might make a cleaner looking roof on a building or an awning for the porch.
*Make a sail that would speed boat travel. Without wind dynamics in Minecraft no physical properties would exist, but a boat under sail could go faster. If developement of boats is taken to greater size and durability, it seems only logical to have sails be a crucial factor in the speed of the vessel.
*If blocks that are dropped on to canvas were affected by gravity to slide at the 45 degree angle then canvas could be used as a way to move produce, or just make a really cool slide.
Crafting canvas- Well it could be as complicated as collecting string and wool or just one of these, then crafting a loom to weave it with. Less complicated would just be a crafting of the raw material on a crafting table. If a loom is used and various dyed wools are added, maybe even the creation of Tartan (plaid wool).
P.S. Canvas should probably be prone to catching fire if too close to a fire source. Maybe a fire-retardant potion could avoid this.